CALGARY – The federal government has vowed to build the Trans Mountain expansion project despite a major setback Thursday from a Federal Court of Appeal decision overturning the pipeline’s construction permits.

Appeals Court judge Eleanor Dawson ruled Thursday that the federal government did not carry out its duty to consult with affected First Nations on the project and that the National Energy Board’s report was flawed because it did not consider the issue of tanker traffic.

She described the consultation process as insufficient in part because it was “missing a genuine and sustained effort to pursue meaningful, two-way dialogue.”

Now, the project will need to undertake new reviews if it is to move forward.

The decision is not what the Calgary oilpatch was expecting — with many analysts and executives expressing both surprise and vexation at the decision because, they said, the Trans Mountain project had gone through the most extensive consultations and reviews to date.

Opposed Indigenous groups along the route, however, celebrated the decision. Union of British Columbia Indian Chiefs president and Grand Chief Stewart Phillip called it “one in a long line” of decisions recognizing Indigenous title and rights.

Even with the new challenge and continued opposition, Finance Minister Bill Morneau, who negotiated Ottawa’s $4.5-billion deal to buy the Trans Mountain pipeline and expansion project from Kinder Morgan Inc. in May, said the federal government remains committed to building the pipeline.

“This is a project that’s in Canada’s national interest. A project that means thousands of good, well-paying jobs for the middle class,” Morneau said. “This one will be a strong, commercial project once we de-risk it. That’s what we’re attempting to do, so we can be in the market in the long term.”

“The court has asked us to respond promptly and in a meaningful way to today’s decision and has given us some good directions in next steps,” Finance Minister Bill Morneau told reporters following the decision.

“While we want to make sure the project proceeds, we also want to make sure it moves ahead in the right way,” Morneau said.

Asked if the federal government would appeal the decision, Morneau would only say he is reviewing the document first.

In the near term, Kinder Morgan Canada is preparing to halt construction, which had just begun in recent days on the pipeline route in Alberta.

“Trans Mountain is currently taking measures to suspend construction related activities on the project is a safe and orderly manner,” Kinder Morgan Canada Ltd. president Ian Anderson said in a release, adding that a favourable decision was not a condition of the company’s sale of the project to Ottawa.

Ironically, Kinder Morgan Canada shareholders voted overwhelmingly to sell the Trans Mountain pipeline expansion project to the Canadian federal government less than an hour after a judge quashed the project’s construction certificates. The special meeting in Calgary lasted three minutes and resulted in 99 per cent of shareholders voting in favour of the deal to sell the pipeline system to Ottawa for $4.5 billion.

Kathleen Lang, a Kinder Morgan Canada shareholder who attended the meeting and voted in favour of the sale said she believes Trans Mountain is crucial for the Canadian economy. She said in spite of Thursday’s court ruling, she still believes the project will be built.

“They’re going to have to fight it, in order to get it to go through,” she said.

This is a project that’s in Canada’s national interest. A project that means thousands of good, well-paying jobs for the middle class

Bill Morneau

When the deal closes as expected on Friday, all Canadians will be shareholders in the project, said TriVest Wealth Management’s Martin Pelletier. “There’s nothing wrong with being a shareholder — it’s just a matter of ‘at what price?’” he said.

The court decision is expected to cause further delays to the project and drive up its final price tag, previously estimated at $7.4 billion. Kinder Morgan’s disclosures had shown the price could rise as high as $9.3 billion if construction wraps up in 2021.

Thursday’s court decision, and its delays and rising costs, are “extremely frustrating,” Canadian Association of Petroleum Producers president and CEO Tim McMillan said.

“We have a regulatory system in Canada that is so complex that not even the government or the regulator understands it,” McMillan said, noting the proponent, Kinder Morgan, did fulfill extensive consultations with First Nations.

Cenovus executive vice-president Al Reid said in an email that the company was disappointed but added that he will be “watching closely to see how the federal government responds.”

“After years of exhaustive review, any further delays to this important project will only serve to harm the Canadian economy by limiting access to global markets for the country’s oil exports and depriving governments of additional tax and royalty revenues,” Reid said.

Former Saskatchewan premier Brad Wall said the duty to consult with Indigenous people is critical but added, “the benchmark keeps changing.”

Wall said Justice Dawson is the same judge who ruled Ottawa did not fulfill its duty to consult during Enbridge Inc.’s Northern Gateway pipeline project application, which he said is all the more frustrating since both Ottawa and Kinder Morgan attempted to work the recommendations from that process into its consultations with First Nations.

“What is enough and why does it keep changing?” Wall said. “There doesn’t seem to be an easy, quick fix to this at all.”

What is enough and why does it keep changing? There doesn’t seem to be an easy, quick fix to this at all

Brad Wall

Similarly, Canadian Energy Pipelines Association president and CEO Chris Bloomer said both the federal government and Kinder Morgan went through an additional review and consultation process shortly after the Liberals came to power in Ottawa and “even that seems to have been deficient.”

“They need to move as quickly as possible to find a solution,” Bloomer said.

Across the oilpatch, analysts, investors and executives expressed their discouragement with the court ruling.

Canaccord Genuity analyst David Galison said he expected the government would continue consultation work on the project, which he expected would eventually get built, albeit at a later date than previously expected.

“If I were a betting man, I’d say 2021 or after that,” Galison said.

By that time, Scotiabank commodity economist Rory Johnston said the amount of crude oil moving on railways cars would continue to grow without new export pipelines as the current export system is full and in apportionment.

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